Gold: Have Investors Gotten Too Optimistic?

By Brendan Conway

To Ned Davis Research ETF strategist Neil Leeson, goldbugs have grown too sunny for their own good. Without so little 2013-style pessimism out there, Leeson sees reason to take profits.

He’s arguing this week it’s time to pare back on gold ETFs, but Leeson says the timing is especially ripe for gold-miner investments such as Market Vectors Gold Miners ETF (GDX), which has surged 30% during 2014. The group has gotten an extra boost lately from trouble in Ukraine.

“We like to go with the crowd until they reach an extreme, and then reverse,” Leeson told clients in a Friday podcast. “We have now reached excessive optimism again in gold … [which] typically isn’t good for gold futures going forward.”

The accompanying chart compares Leeson’s proprietary sentiment model with the trading of the Market Vectors ETF. When the sentiment reading gets to 68 or higher — it’s in the mid-80s at the moment — the annualized returns for those periods are a drop of more than 28%, he contends.

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There are 3 comments

MARCH 14, 2014 1:11 P.M.

Peter Wilson wrote:

I read alot of Gold commentary. And it seems a mix of bull and bear.

A number of the analysts seem to be cautious on gold move upward..

- This analyst is cautious
- Jubek recently suggests a short-term correction is due before gold moves any higher.
- Globe & Mail has a bearish article today saying "market participants are cautious"
- and gold fund inflows seem modest or flat so far this year confirming "caution"

Gold has certainly had a nice move upwards this year.. but is it really "goldbugs have grown too sunny for their own good. Without so little 2013-style pessimism out there" ??

MARCH 14, 2014 2:17 P.M.

Alex wrote:

Yeh, the crowd is extreme? Kinda like the DOW and NASDAQ? Stick with gold and gold miners you will be fine when the dust clears.

MARCH 14, 2014 3:48 P.M.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.